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2001 DIGILAW 558 (MAD)

Indian Institute of Architects v. Union of India

2001-04-30

A.KULASEKARAN, V.S.SIRPURKAR

body2001
Judgment :- V.S. SIRPURKAR, J. This judgment will govern the above writ petitions, which are filed under Art. 226 of the Constitution of India. Out of the above writ petitions, while W.P. No. 8539 of 2000 is filedby the Indian Institute of Architects Association, Tamil Nadu Chapter on behalf of the Architects in general, who are registered under it as the practicing Architects, rest of the writ petitions pertain to the Chartered Accountantsand have been filed by the various representative bodies of which the practising Chartered Accountants are the members since the question involved in identical in all these petitions and they are being disposed of by this common judgment. 2.Shortly stated, the Architects and Chartered Accountants are challenging the constitutional validity of the provisions of Finance Act by which the services offered by the Architects and Chartered Accountants have been brought under the tax-net, which is to be chargedat five per cent of the value of the taxable service provided to any person by the Architects or the Chartered Accountants. Sec.116 of the Finance Act No. 2 of 1998 is in challenge, as amended by Act 32 of 1994, and has first defined the said services and included them in the tax-net. The relevant portions of the Finance Act are as under : 65. Definitions In this context, unless the context otherwise requires, (5) "architect" means any person whose name is, for the time being, entered in the register of architects maintained under section 23 of the Architects Act, 1972 (20 of 1972) and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture. (31) Practising "Chartered Accountant" means a person who is a member of the Institute of Chartered Accountants of India and is holding a certificate of practice granted under the provisions of the Chartered Accountants Act, 1949 (38 of 1949) and includes any concern engaged in rendering services in the field of chartered accountancy.(48) "taxable service" means any service provided, (p) to a client, by an architect in his professional capacity in any manner; (s) to a client by a practicing chartered accountant in his professional capacity, in any manner; The other features of the Act are that the providers of the services, i.e. "architects" and "practising chartered accountants" are assessees under the Act and are responsible for collecting the said tax at the prescribed rate. The relevant section, Sec.66 (4), reads as follows : 66. Charge of service tax (4) with effect from the date notified under section 116 of the Finance (No. 2)Act, 1998, there shall be levied a service tax at the rate of five per cent of the value of the taxable services referred to in sub-clause (p), (q), (r), (s), (t), (u), (v), (x), (y) and (z) of clause 48 of section 65 and collected in such manner as may be prescribed. The said valuation of the "taxable services" is provided in Sec.67. The relevantprovisions are as under : 67. Valuation of taxable services for charging service tax For the purposes of this Chapter, the value of taxable services. (o) in relation to the service provided by an architect to a client, shall be the gross amount charged by such architect from the client for services rendered in professional capacity in any manner; (r) in relation to the service provided by a practising chartered accountant to a client, shall be the gross amount charged by such accountant from the client for services rendered in professional capacity in any manner : 3.The main and the only challenge to the relevant provisions inflicting the tax liability is on the ground of lack of "legislative competence" on the part of the Parliament. According to the petitioners, the "Architects" and "Chartered Accountants" are the"professionals", which professions are governed and controlledbythe separate enactments and, therefore, considering the pith and substance of thepresentenactment, inflicting the tax, it is nothing but a "tax on profession, trade, business and calling, which is covered under entry 60 of the State List (List II). According to the petitioners, the "Architects" and "Chartered Accountants" are the"professionals", which professions are governed and controlledbythe separate enactments and, therefore, considering the pith and substance of thepresentenactment, inflicting the tax, it is nothing but a "tax on profession, trade, business and calling, which is covered under entry 60 of the State List (List II). The petitioners further contendthat the so-called"service tax" is presumably being inflicted under the"residuary entry", i.e. Entry 97 of the Union List (List I) provided by Art. 248 of the Constitution and since the said challenged tax fall under entry 60 of the StateList (Listii), the Parliamentwas not competent tolegislate the presentenactments. 4.It will be better to see the wordings of Art. 248 andEntry60 of the State List (List II), which read as under: "60. Taxes on professions, trades, callings and employments." 5.Before we venture upon to consider the rival contentions, itwill be better to see the legislative historyof the Finance Act providingtaxation on thevarious"services". 6.In theBudget presented in February, 1994, "service tax" was sought to be levied on stock brokers, non-life insurance agents and telephone bills. The provisionscame into being with effect from 1-7-1994. It was during that budget presentation speech that the need for taxing the service sector was reiteratedrealising thatthe service sector constitutes about 40% of the NationalGDPwhich till then was tax-free. The need was allthe more felttotax the service sector becausewhilethe "goods" manufactured were taxed, the "service sector", which was growing rapidly and was bound to grow further was, however, generally ignored. The tax-net was then widened by Finance Act No. 2 of 1996 to include some other service sectors. By Finance Act, 1997, twelve additionalservices were introduced and included as the taxable services and ultimately by Finance ActNo.2of1998, number of other services came to be included, including the architects, practisingChartered Accountants, practising cost accountants, practising company secretaries, etc., which provisions are now under challenge. 7.The main argument for the petitioners wereaddressed byMr. ArvindP.Datar, learned senior counselandMr. MohanParasaran, learned counsel and their argumentswere adopted by the other learned counsel appearing on behalf of thepetitioners.The contentions of the learned counsel are as under : 8.The first contention is that even if the said taxis described as a "service tax" or a tax on services, inpith and substance, this tax is "on" profession. The learned senior counsel, Mr. MohanParasaran, learned counsel and their argumentswere adopted by the other learned counsel appearing on behalf of thepetitioners.The contentions of the learned counsel are as under : 8.The first contention is that even if the said taxis described as a "service tax" or a tax on services, inpith and substance, this tax is "on" profession. The learned senior counsel, Mr. Datar, argues that unlike the other services, which are not governed or controlled by the legislative enactments, incase of architects and chartered accountants, there is a central legislation. While architects are governed by the Architects Act, the Chartered Accountants are governed by theChartered Accountants Act. These enactmentscontrol theprofessionsof architects and Chartered Accountants. The contention is that anytax which relates to theprofessional services has to be necessarilyviewed as a tax "on" profession because if the concerned person was not engaged in that profession then, there would be noquestion of taxing thesaidperson. The learned counsel arguesthat the aspect of service cannot beseparated from the profession as the professional hasno othertask except providing his professional services. 9.Our attention is then drawnto the language of the taxable serviceandit ispointed out that therein what is taxed is the service rendered by an architect orthe chartered accountant in his "professionalcapacity". Both the learnedcounsel argue that to offer a service in the professional capacity is the onlythingthat a professional can or expected to do and, therefore, any taxin relationto that service has to be integrally connected to the profession. According to the learned counsel once this position is clear then if the legislativecompetenceis beingsought from the residuary power, i.e.entry97 of the Union List (List I), that would be clear breach of Art. 248(1)asany tax "on" professionis alreadycovered by entry 60. According to the learned counsel, the true test would be to examine as to whether the StateGovernmentcouldhavelegitimatelylegislatedthe impugned legislation. Thelearned counsel argues that ifthe answer is "yes" then, theimpugnedlegistationis clearly beyond the legislative competence of the Parliament owing to the positive language of Art. 248(1). Forthispurpose, Mr.Datarargues that Secs. 65, 66 and67 should be bodily lifted from the central enactment and treatedas ifit is a State enactments. The learned counsel arguesthatthat there would beno impediment or fetter against theState Government as such the enactment would have to be heldwithin the legislative competence of the State legislature with the aidofentry60.Mr. Forthispurpose, Mr.Datarargues that Secs. 65, 66 and67 should be bodily lifted from the central enactment and treatedas ifit is a State enactments. The learned counsel arguesthatthat there would beno impediment or fetter against theState Government as such the enactment would have to be heldwithin the legislative competence of the State legislature with the aidofentry60.Mr. MohanParasaran alsosupported the said argument by pointing out that the language of the impugned legislation itself was clear enough to suggest that thelegislationwas integrally connected with the profession. 10.Mr. Chandrasekaran, learned senior counsel appearingon behalf of the respondents, however, defended theconstitutionality of the enactment and the legislative competence of the Parliament contending that inpith andsubstancethis legislation could not be said to be atax "on" professionthoughit related "to" the profession.Thelearned counselcontendedthat even if the language ofentry 60 is to be construed in itswidest amplitude, the presentlegislationcouldnot be said to beinflicting a tax "on" profession, trade, calling, etc. the learned counsel further argued that if this tax had beeninflicted by the State Government, as is suggested by the learnedseniorcounsel for the petitioners, then, itwould have been surelyhit by the provisions of Art. 276.The learned counsel points out thatin the present scheme, the taxliability is not limited but, may go beyond the limits ofRs. 2, 500/- fixed by Art. 276 (2). Thelearned counsel also argued that the nature of taxis entirely different andmerely because it relates "to the" profession, it cannot be said to be a tax"on" profession.Learned seniorCounsel for the respondents didnot dispute thepositionthat the Parliamenthas taken the recourse to the residuary power under Art. 248 read with entry 97 of theUnion List(List I) for enacting the present legislation. 11.It will be seen that in the decision reported in , (Subramani Chettiarv.Muthusami Goundan) the Courthad observed asfollows: -" Butresort to that residual power should be the very last refuge. It is only when all the categories in the threelistsareabsolutelyexhausted that one can think of fallingback upon a nondescript. "The learned, seniorCounsel on behalf of the respondents did not dispute the position that this taxwas a "nondescript" because it, has not so far been describedanywhere.The learned counsel, however, contended that itissui generis. It is only when all the categories in the threelistsareabsolutelyexhausted that one can think of fallingback upon a nondescript. "The learned, seniorCounsel on behalf of the respondents did not dispute the position that this taxwas a "nondescript" because it, has not so far been describedanywhere.The learned counsel, however, contended that itissui generis. We will consider the argument regarding the nature of the legislation and the taxa little later but before that, we mustobserve that the observations of the Federal Court quotedabove related to the positionunder the Government ofIndia Act, 1935 where the relevant section was in the same terms asArt. 248. 12.Ina celebrated decision of the SupremeCourt inInternational Tourist Corporation case JusticeChinnappa Reddy observed as follows :" Before exclusive legislative competence can be claimed for Parliament by resort to the residuary power, the legislative incompetence of the Statelegislativemust be clearly established. Entry 97 of List I in the Seventh Schedule itself is specific that a matter can be brought under that entry only if it is not enumerated in List II or List III and in the case of tax if it is not mentioned in either of those lists. In a Federal Constitution like ours where there is a division of legislative subjects but the residuary power is vested in Parliament, such residuary power cannot be so expansively interpreted as to whittle down the power of the State legislature. That might affect and jeopardies the very federal principle. The federal nature of the constitution demands that an interpretation which would allow the exercise of legislative power by Parliament pursuant to the residuary powers vested in it to trench upon State legislation and which would thereby destroy the little state autonomy must be rejected. "13.InH.S. Dhillon'scase, the Supreme Court observes :" Be that as it may. We have three listsandaresiduarypowerand, therefore, it seems to us that in this context if a Central Act is challengedasbeing beyondthe legislative competence of Parliament, it is enough toenquireif it is a law with respect tomatters or taxes enumerated in List II.If it is not, no further question arises. "It is, for this reasonalone, thatthe learned senior counselMr.Datar as also Mr. Parasaranargued thatin pith and substance, the tax covered by the impugned legislationis nothing but a tax"on" profession and, therefore, the impugned legislation comesunderentry60 of the State List (List II).Regarding the theoryof"pith and substance" also, the law is well settled. "It is, for this reasonalone, thatthe learned senior counselMr.Datar as also Mr. Parasaranargued thatin pith and substance, the tax covered by the impugned legislationis nothing but a tax"on" profession and, therefore, the impugned legislation comesunderentry60 of the State List (List II).Regarding the theoryof"pith and substance" also, the law is well settled. There isalmost an unanimity that where a comparison is made between entry97 of the Union List(List I)andany otherentry in the State List (List II)then, the languagein the State List (List II)has to be given the widest possible interpretation. It will, therefore, be our first task to examine the true nature and scope of the presentlegislation, the taximposed byit and the pith andsubstancethereof. 14.We would firstgo to the "language" of the impugned legislation.The language of Sec. 65(48)(p)(s) wasspecifically relied on by both the learned counsel for the petitioners.It is pointed out the"taxable service" providedby an architect or a chartered accountant"in his professional capacity" was madetaxable.Both the learned counsel urge thatthe words "in his professional capacity" are extremelysignificantand would suggest that what is being taxed is "whataprofessional does for his client". The learned counsel Mr.Datar argued that the term "professional" has a specific connotation.He reminded us both theseprofessions are governed and controlled by specificenactments and there is asupervisingorcontrolling bodyin both the professions which issue licencesto the members and then alone, the concerned persons can practice as an architect or chartered accountant. Fromthis, the learned counsel pointed out that the other servicesthough are made taxable services are not the services provided by the professionalsstricto sensu. The learned counsel also pointed out that whatwouldapplytoSec.65(48)(p)and(s)would apply in the same manner to clauses(t)and(u)of Sec. 65(48) which are in respect of practising cost accountants and practising company secretaries. Then again it is pointed out that even these two can be called "professions".Thelearnedcounsel argues that it is only in these fourprofessions, which are governed and controlled by theseparate enactments that the services rendered to the client intheprofessional capacity hasbeen made taxable and, therefore, such service cannot beconsidered tobe separate fromthe profession itself because the professionalshave no other task to do exceptingto provide the professional services and it is only on account of that, they become taxable even under the "professional tax" inflicted under entry60. The argument goes further and says that, therefore, the tax levied againstthe"professional services" given in a professional capacity, i.e. as an architect or as a chartered accountant, has to be viewed as a tax on professionitself. The learned counsel pointed out that the terms "services rendered in a professionalcapacity" is not made applicable to any other services covered in Sec. 65(48) barring the above mentioned four services, whichservices aregoverned by specific enactments. The learned counsel also point out that while valuing the said services, Sec. 67(r)and(s)provide that the"gross amount" charged for the services rendered in the professionalcapacity has been viewed as the valuation of the taxable service rendered. In short, theargument is that the service offered which has beenmade taxable cannot be different fromthe profession itselfbecause theprofessional does nothingless except giving the professional service. 15.On the backdrop of these arguments, when we see the language of entry 60, one realises the stark difference in the language. While the impost under Sec. 65(48)is against the services in thematter of service tax, the impost of a professional tax has to be necessarily against the profession itself. Entry60, which runs as "Taxes on professions, trades, callings and employments" suggests that itis a tax on profession, trade, calling or business. The question that we askiswhether a tax on profession can be viewed to be a tax on services or vice versa. We feel the two are separate and distinct. 16.Mr.Chandrasekaran, while describing the "service tax" urged that it issui generisand it is a completestatute providing for(i)tax on the services;(ii)it defines the taxable services; and(iii)it also provides themeasure thereof.While dealing with this, the Apex Court inLaghuUdyogBharativ.Union of India, points out that Sec.66, which is a charging section, has to be read with Sec. 65(d)(41)[now Sec. 65(48)].In paragraph 8, the Supreme Court saysit is clear from the reading ofthese provisions that according to the Finance Act, the charge of the tax is on the person who is responsible for collectingtheservice-tax. It is he whoby virtue of provisions ofSec.65(5)isregardedas anassessee.He is the person who provides the services. After taking the resume of the machinery under the Finance Act, this is what the Supreme Court says about the service tax in paragraph 9 :" service tax is levied by reason of services which area offered. The imposition is on the person rendering the service. After taking the resume of the machinery under the Finance Act, this is what the Supreme Court says about the service tax in paragraph 9 :" service tax is levied by reason of services which area offered. The imposition is on the person rendering the service. Of course, it may be an indirect tax, it may be possible that the same is passed on to the customer but as far as the levy and assessment is concerned it is the person rendering the service who alone can be regarded as an assessee and not the customer. This is the only way in which the provisions can be read harmoniously.From this the learned counsel pointed out the unique nature of this Act. We are in complete agreement with the learned counsel considering the fact that so far the "service sector" was almost ignored for the purposes of the tax and the present Finance Act aims at that service sector. The taxation which aimed at three services to begin with, the scope thereofhas now been broadened and various services, including the professional services, have now been taken into fold. The Supreme Court observed in paragraph 8 as follows : "Now it is true that the speeches made by the members of the legislature on the floor of the House when a bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in juristic thought not only in western countries but also in India that interpretation of a statute being an exercise in the ascertainment of the meaning, every thing which is logically relevant should be admissible." The Supreme Court, in this case, was considering the scope of Sec. 52(2) of the Income-tax Act. We have referred to what was said by the Finance Minister in 1994 during the budget session. The whole thrust of this legislation was against the services which constitute 40% of the National G.D.P. This would provide a very important angle while considering the real nature of this legislation. We have referred to what was said by the Finance Minister in 1994 during the budget session. The whole thrust of this legislation was against the services which constitute 40% of the National G.D.P. This would provide a very important angle while considering the real nature of this legislation. In our opinion, considering the language which aims at the "service sectors" alone, in the light of the attendant circumstances like the purpose and object of the enactment it cannot be said that this subject of legislation is notsui generisand in reality pertains to a field of "state legislation". 17.InWestern India Theatres Ltd.v.Cantonment Board, Pune, Chief Justice S.R. Das, had following words to say about the tax on profession : "The entry, as we have said, contemplates a law with respect to these matters regarded as objected and a law which imposes tax on the act of entertaining is within the entry whether it falls on the giver or the receiver of that entertainment. Nor is the impugned tax a tax imposed for the privilege of carrying on any trade or calling. It is a tax imposed on every show, that is to say, on every instance of the exercise of the particular trade, calling or employment. If there is now show, there is no tax. A lawyer has to pay a tax or fee to take out a license irrespective of whether or not he actually practises. That tax is a tax for the privilege of having the right to exercise the profession if and when the person taking out the license chooses to do so. The impugned tax is a tax on the act of entertainment resulting in a show." Identical enough if a Chartered Accountant or an Architect who is paying professional tax does not give any service though he chooses to be on the roll of Architects or the Chartered Accountants would not be required to pay the present tax. The aforementioned judgment inWestern India Theatrecase cited supra, has remained undisturbed throughout. InKamtaprasadcase the Supreme Court observed: "A tax on profession is not necessarily connected with income. This is clear from the tax on professions imposed by several municipal authorities at certain rates mentioned in the relevant statutes. A tax on income can be imposed if there is income. A tax on profession can be imposed if a person carries on a profession. This is clear from the tax on professions imposed by several municipal authorities at certain rates mentioned in the relevant statutes. A tax on income can be imposed if there is income. A tax on profession can be imposed if a person carries on a profession. Such a tax on profession is irrespective of the question of income." The significance ofKamtaprasadcase, cited supra, is that therein thereis no reference totheearlier decision inWestern India Theatrecase, cited supra. Even theKamtaprasadcase, cited supra, hasremaineduncontradictedso'far. 18.Thelearnedsenior Counselhowever contendedthat the observations regarding theprofessional tax made inWestern India Theatrecase cited supra, could not be said to be the ratiodecidendiof that decision. Thelearned counsel urges that the judgment cannot be interpreted to mean that the tax on profession must be only on the privilege of carrying on a particular profession. The further argument that itis open to the State Government or the Local Boards to law the taxon professions with reference to his "grossincome" as a measure of tax. Even as regards the observations inKamtaprasadcase, cited supra, the contention was the decision is not an authority for the proposition that tax on profession cannot have reference to gross professional receipts. 19.We do notthink that the comment about theKamtaprasadcase, cited supraor theWestern India Theatrecase, cited supra, is correct. We have pointed out that the observations inWestern India Theatrecase have remained undisturbed right from 1959 and the view of the Supreme Court that a tax on profession can beimposedifaperson carries on a profession andthat such tax on profession is irrespective of the question of income has remained undiluted or undisturbed for all theseyears.Wehave no hesitation in observing that theobservations in these two cases reallyclinch the issue in so farthe nature or a professionaltax is concerned which is covered byEntry60 of ListII.In the same line isthe decision inR.R. Engineeringcase, reported in. 20.Thelearned counsel tried to urge that these observations were only in the nature of obiter and, in fact, eitherWestern India Theatrecase orKamtaprasadcase, cited supra, was not an authority for the proposition that thetax on profession could have referenceto "gross professional receipts". The learned counselcontended that in none of the cases, the Supreme Court was considering the implications of Entry 60 oflistII and the professional tax covered thereby. The learned counselcontended that in none of the cases, the Supreme Court was considering the implications of Entry 60 oflistII and the professional tax covered thereby. The learned counsel also relied on the decision inMittal Engineering Worksv.CCE and more particularlythe observations made in paragraph 8 in that caseto the effect that a decision cannot be relied upon support ofaproposition which was not decided by that decision. Itwas, therefore, urged thatWestern India Theatrecase andKamtaprasadcase, cited supra, were not theauthoritiesfor theproposition that Entry 60 in List II will be confined onlyto levying tax on theright or the privilege to carry ona particularprofession.According to thelearned counsel, the decisions onlymadeitclearthat the taxon professions could be levied irrespective or whether the professional earned any income out ofthat profession ornot.According to thelearnedcounsel these decisionsdidnot take awaythepowers of the State to levy professional tax based on income. We are unable to agreewithall thesecontentions. 21.InWestern India Theatrecase, cited supra the Supreme Courtwas consideringthe "entertainment tax", which was payable per show. We have alreadyquoted the relevant observations in our judgmentwhich clearlygo to show that the observations made regarding the professional taxare not as restrictive as thelearned counsel suggests. The Supreme Court thereinclearlybrought outthe distinction that if there was no show, there was no tax whiletheprofessionaltax, which a professional has to pay, is irrespective of whether he actuallypractices that profession or not.Indescribing the professional tax, the Supreme Court very clearlybrought out the distinction between"professonaltax" and "entertainment tax". 22.Similar isthe position inKamtaprasadcase, cited supra.Inthat case the SupremeCourt said a tax on profession is not necessarilyconnected with income and pointed out that even as per the Supreme Court, a tax on profession could not beconnected or linked withthe income. The learnedcounsel also argued that there are other instances where the courtshave viewed that theprofessional tax could beconnectedwith income. 23.Reliance was placed on the decisions inSudhir Chander Anandv.State of U.P.(AIR 9169 ACC 317) andK. Abrahamv.State of Kerala 1958 AIR(Ker) 129). First is the Full Bench decision where itwasobservedin paragraph 7 of the judgment that thesubject matter of the tax in case of"professions" is notthe income and that the reference toincomeis only as a measure of tax andthat the ceiling ofRs. 2, 500/-onlyshows thatthe income cannot be the subject matter oftax but only beameasure of tax. First is the Full Bench decision where itwasobservedin paragraph 7 of the judgment that thesubject matter of the tax in case of"professions" is notthe income and that the reference toincomeis only as a measure of tax andthat the ceiling ofRs. 2, 500/-onlyshows thatthe income cannot be the subject matter oftax but only beameasure of tax. In thesecond-mentioned case ofK.Abraham, it is observed in paragraph 25 that thebase of theprofessional tax can be either "occupation" itselfor "income" derived therefrom.Using these two decisions, the learned counseltried to arguethat besidesWestern India Theatrecase andKamtaprasadcase, cited supra, which were not the be all and end all of the matter in respect of the professional tax itcan besaid thatthe professional tax can be linked with income and therefore, the service tax, which was linked withthe income, could be straightaway viewed as a professional tax coveredin Entry 60 and, therefore, outside the legislative competence ofthe Parliament. 24.The argument is incorrect. In thefirst place, we are not with the learned counsel when he says that the above mentioned two cases of the SupremeCourt did not clinch the issue regarding the profession tax. In both these cases, it is very clearly stated that a tax on profession is irrespective of thequestion ofincome and it can be imposed if a person carries on a profession. Therefore, the nature ofthe profession tax is clearly held by the Supreme Court to be a tax on account of the fact of the particular profession carries on that profession and nothing more than that. The judgments of the Allahabad High Court andKeralaHigh Court cannot be relied upon to wipe-out theobservations made in theSupreme Court judgments and, therefore, have to beignored. As it is the learned counsel had relied upon those judgments justto show that the professiontax could be linked with the income. What would ensue if the profession tax is linked with the income would be considered by us when we discuss the scope of Art. 276 of the Constitution of India. 25.The learned counselalsocontended that must read Secs. 65, 66 and 67 differently and in case they were bodily lifted from the Central enactmentandtreated asif they were a part of the State enactment, they would have certainly been within the competence of theState Legislature because of Entry60of List II. 25.The learned counselalsocontended that must read Secs. 65, 66 and 67 differently and in case they were bodily lifted from the Central enactmentandtreated asif they were a part of the State enactment, they would have certainly been within the competence of theState Legislature because of Entry60of List II. Forthispurpose, the learned counsel relied on the language of the sections to which we have already made areference earlier.Thelearned counsel argued further that sincethe professionals like Architects, Chartered Accountantsarid Cost Accountants can give nothing excepttheir "services" and if those services aremade taxablethen, therewouldbealink between those servicesand the profession and in effect, it would be a tax onprofession. 26.We do not agree because we are completely convincedthat the Apex Court has been looking at theprofessional tax as the tax forhavingaprivilegeto carry on thatprofession in that State. In both the earlier referred cases ofWestern India Theatrecase andKamtaprasadcase, the Supreme Courthas very clearly said that the professional tax has no connection or linkwith the incomethereof. It virtually means that a privilege to practicea profession has got no relation or link with the income thereof, which comes only as a resultof the services provided bytheprofessionals. Therefore, there is a clear distinction between the privilegeto carry onprofessionandtheservices offered as professional. Which result into the income from that profession. Therefore in our opinion, the argument that he servicetax could have been legitimately chargedbytheState Government under a State enactment is clearly incorrect and ithas to be held that while the profession taxdeals with the privilege to practice a particularprofession, the present service tax deals with the "services" provided by the professionals and therefore, the two are distinct and separate and the service tax cannot be viewed or confused as a tax on profession. 27.During the course of the arguments, the learned counsel urged that the StateGovernmentcould have legitimately levied a tax and the measure ofthetax could have been linked with the income. Theargument was thatin that event, the nature ofthe taxcould nothave been decided in relation to the measure of the tax. The learned counsel argued that the nature of tax cannot be decided upon the basis of the measure of the same and, therefore, even if the State Government had provided such a measureby linking the tax to the income therefrom, it would not have been possible to hold that the tax is bad for the lack of legislative competence on the part of the State Government. Weare afraid the argument cannot stand on the touchstone of Art. 276(2) whichprovides a ceiling to the tax ofRs. 2, 500/-.Now, as proposed by the learned senior counsel, if the measure of the tax had been linked with the income, there could not have been any limit provided by the State and if the tax had Art.276(2). Therefore, any provision which was likely or capable of committing a breach of Art. 276(2) would clearly be void and, therefore, vitiated. In our opinion, Art.276(2) itself creates a fiction that though a tax on profession relates to an income therefrom, it will not be so and by the creation of a limit to the profession tax sub-Art. (2)of Art. 276 itself suggests that income from the profession isirrelevant in the matter oftax on profession. It is only with that idea thatsub-Art.(2)creates a limit. The creation of the limit itselfgives a distinct character to the tax on profession and, therefore, a tax whichis not fettered by a limit like one created by Art. 276(2) and which relates to the professional income cannot be viewed as a profession tax. 28.The contention raised by the learned senior counselforthepetitioners regarding the language of the provisions levying the service tax was that under Sec. 65(48)(p)and(s)what was made taxable was theservices offered by a professionalinhis "professional capacity". Our attention was also invited to the provisions inrespect of the practising Cost Accountants and Company Secretaries, which say that only the professional services offered by them were made taxable. Soalso, theargumentwas directed by the learned counsel for the petitioners that for evaluation purposes, Sec.67(l) and (s) provide that the gross amount charged for the services rendered by a professional in his "professional capacity" would be the valuation of the "taxable service". It was on this backdrop that we have proceeded firstly to consider as to what is the implication of a professionaltax as covered by theEntry 60 of List II. We have then pointed out as to what is the view taken bytheSupremeCourt regarding the professional tax and how it would be different from the servicetax, which essentially is notquathe profession butquathe services provided by the professionals in their "professional capacity". We have then pointed out as to what is the view taken bytheSupremeCourt regarding the professional tax and how it would be different from the servicetax, which essentially is notquathe profession butquathe services provided by the professionals in their "professional capacity". However, the argument of the learned counsel went further and proceeded on the lines that by the very language of theimpugned provisions, the aspect of profession could not be separately viewedfromthis service tax and the profession or the income therefrom, which was specifically referredto in the impugned provisions, was bound to be treated as an integral part of the part of the service tax and, therefore, it could not be separated and, therefore, in reality the said service tax would have to be viewed only as a professional tax. 29.This argument was countered by the learned standing counsel for the respondents by relying on the decision by theSupreme Court, reported in (Federation of Hotels and Restaurentscase).In fact learned counsel for the petitioners also used this decision. This was a case where the Apex Court wasconsideringthe constitutionality of the"expenditure tax" asprovided bythe Expenditure Tax Act. The Apex Court was considering the legality andlegislative competence of the tax levied by the Parliament on expenditure. The impugned Act was Expenditure Tax Act, 1987, which envisaged a tax at 10%ad valoremon "chargeable expenditure" incurred in the class ofhotels wherein "room charges" for any unit of residential accommodation are rupees four hundred or more per day per individual. The "chargeable expenditure" was defined by Sec. 5 ofthat Act and included the expenditureincurred in or payments made in such class of hotels inconnection with the provisions of any accommodation, residential or otherwise, food or drink whether at our outside the hotel or for any accommodation in such hotel onhire or lease or any other services envisaged in that section. The challenge was on the ground that this tax, which was being imposed under entry 97 of List I under Art. 248 of the Constitution ofIndiawas beyond thelegislative competence as, in fact, this expenditure tax wassquarely covered under Entry62 of List II which pertained to the tax on luxuries including the tax on entertainments, amusements, betting and gambling and also could be covered underEntry 54 of List II as the transaction in question also amounted the sale of foodstuff (goods) to the customers. The Supreme Court upheld the validity of the levy of the tax.It held that the said taxcould have haddistinctaspects. Itrecognised thesaid distinct aspect, viz. the expenditure aspect of the transaction and held the same to be falling within the union power. It held that aspect to be distinguished from the aspect of luxury or sale of goods. It observed in paragraph 19 as follows:- "The submissions of the learned Attorney General that the tax is essentially a tax on expenditure and not on luxuries or sale of goods falling within the State power, must in our opinion, be accepted. As contended by the learned Attorney General the distinct aspect namely, "the expenditure aspect" of the transaction falling within the Union power must be distinguished and the legislative competence to impose a tax thereon sustained...". 30.This decision of the Supreme Court is very clear to support a proposition that even if this service tax was linked with the professional income or the professional services even then, it had a "distinct aspect" of services. The tax was not on the basis that a professional was carrying on his profession like aChartered Accountant or a Cost Accountant. The tax was, on the other hand, on the "professional services" offered by him to the clients and the service aspect was a distinctaspect and could not be confused with the aspect ofa tax whicharoseonlyon account of the fact that a professionalwashaving the privilege of carryingon hisprofession.A tax which the professional hadto pay because he hashad the privilege to carry on the profession or because he was carrying on the professionin a particular State is totally distinct and separate from the tax which he has to pay on services and which tax he would be ableto pass on the customer who has had the advantage of his professional services. A professional tax covered underEntry 60 cannot betransferredinsharp contradistinction withthepresent servicetax, which is capable of beingtransferred to the customers who has the advantage of enjoying the services. Again, professionaltax has to be paid whether a professionalactually has giventhe professional service or not whereas, the service tax will not be payable ifaprofessional like a Chartered Accountantor Cost Accountant has in reality not rendered any professional services to a customer. Again, professionaltax has to be paid whether a professionalactually has giventhe professional service or not whereas, the service tax will not be payable ifaprofessional like a Chartered Accountantor Cost Accountant has in reality not rendered any professional services to a customer. These aspects are distinct aspects and, therefore, anaspect which entirely depend upon the services offered by the professional though may have a nexus with the profession yet the service becomes a distinct aspect in itself and can be legitimately taxed by the Parliament underEntry97 of list I as has been done in the present case. 31.Mr. Chandrasekaran, learned senior standing counsel appearing on behalf of the respondents criticised the argument of the petitioners suggesting that the nature or the tax must be separately identified and the measure orthe tax should not be confused with thenature of the tax. Hepointedout that though Sec. 67(o)and (r) whichprovided the measure of the tax related to theprofessionalcharges, that could not decide the real nature of this tax, which was purely a taxonservice where such taxable service was clearly defined andwhere themeasureof the tax was also specificallydefined. The learned senior counselalso suggested further that the petitioners were confusing in between the tax onprofession as covered by entry 60 and the service taxintroduced by the impugned legislation. Heavily relying on the observations made by theApexCourt inparagraphs42 to 49 of theFederation of Hotels andRestaurantscase, cited supra, the learnedcounselpointed out that there could not be any confusion in this case between theservice tax and the professional tax. The SupremeCourt inthatcase madea specific reference to the observations of A.H.FLefroyin his "CanadianConstitution" asalso to the passage fromLaskin's "Canadian Constitutional Law" extracted in thejudgmentofVenkatachaliah, J.as his Lordship then was. It also made a reference tothe observations of the FederalCourt inC.P. and Berar Actcase [1978 (2)E.L.T.(J 269) (F.C.) which touched upon the "aspect" theory. It referred to the following observations : "Here are two separate enactments each in one aspect conferring the power to impose a tax upon goods; and it would accord with sound principles of construction to take the more general power that which extends to the whole of India as subject to an exception created by the particular power, that which extends to the province only" .The Court also referred to the observations made inKerala State Electricity Boardv.Indian Aluminium Co. to the following effect : "...one thing that has always got to be kept clear in one's mind is that there may be more than one aspect with regard to a particular subject-matter." The Supreme Court further observed in paragraph 45 as follows : " At first blush, the argument of the learned Attorney General may sound a little subtle and somewhat artificial but, on some reflection, legislative competence will indeed be seen to vary with different aspects of a subject-matter as understood in a wide sense. This can be seen from some of the decided cases." The Apex Court then referred to the decisions in reCentral Provinces and Berare Act[1978 (2)E.L.T.(J 269) (F.C) Province of Madrasv.Boddu Paidanna & Sons[1978 (2)E.L.T.(J 272) (F.C) and Governor General in Councilv. Province of Madras[1978 (2)E.L.T.(J 280) (P.C.) and observed further as follows : "Interpreting the word" subject-matter "in a broad sense it could perhaps be said that both were taxes with respect to goods. But his concept alone was not sufficient to dispose of the case because the relevant legislative entries did not talk of taxes with respect to goods but referred to taxes in respect of two different activities referrable to goods (conveniently described as the "taxable event") one the manufacture and production of goods and the other with the sale thereof. In the light of these legislative entries, the two different activities could properly be regarded as two different matters for taxation and the relevant legislation was held to be one concerned with "sale" and not with "manufacture". In other words, there could be two enactments "each in one aspect, conferring the power to impose a tax upon goods". The legislation was held not to be vitiated merely because there was an element of overlapping in that both excise duty and sales tax became leviable on the same assessee in respect of the same goods and by reference to the same sale price when the first sale after manufacture occurs, one by reference to the "manufacture" aspect and the other by reference to the "sales" aspect. This bifurcation of the two different aspects pertaining to goods was justified by the language of the legislative entries themselves which referred separately to the different sets of activities and put them down in different legislative lists. This bifurcation of the two different aspects pertaining to goods was justified by the language of the legislative entries themselves which referred separately to the different sets of activities and put them down in different legislative lists. Again, one the same principle, the manufacture of electricity may attract excise duty atthe pointor itscaptive consumption (under entry 84 of List I) and also a tax onthe consumption or sale of electricity (referable to entry 53 of List II)." In the same vein are the observations made by the Apex Court in paragraph 46 where the Apex Court dealt with the power to levy taxes with respectto property. The Apex Court relied upon the decision inRalla Ram to hold that there were different types of levies one ontheland and buildings(generally, but notnecessarily, measurable byreferencetotheincomederived or capable of being derived) and the other on the income (actuallyor notionally)derived from it. Similar kind of observations were madein respect of the decision inSanik Motorscase in respect of thetaxon passengers. We have already commented upon theSanik Motorscase 1961 AIR(SC) 1980) in ourseparate judgmentin W.P. No. 20 of 1998 etc. while we were dealing with the similar kind of challenge in respect of the service tax levied on "tour operators". The challenge there was thatthe tax was in relation to theprofession or callingbythe tour operators and, therefore, was beyond the legislative competence. We have taken a view that suchchallengecould not be entertainedmuch less on the ground indicated above.There also, we have dealt with the question relying on the aforementioned judgment inFederation of Hotelsand entirely a distinct aspect from the aspect of the profession though there could be some latest overlapping, in our opinion, there is no overlapping in law. 32.Learned Counsel for the respondents also brought to our notice the Division Bench judgments of the Gujarat High Court(Charter Accountants Association and Gujarat Institute of Civil Engineers & Architectsv.Union of India)and Bombay High Court (All India Federation of Tax Practitioners and Othersv.Union of India). We respectfully agree with the same. Both the courts have upheld the constitutionality of these very provisions. Both the courts hve also relied on the decision inFederation of Hotels and Restaurantscase, cited supra. We are in respectful agreement with the views expressed upholding the constitutionality of the impugned provisions. 33.A criticism was leveled by the learned senior counsel for the petitioners against the aforementioned judgments of the Gujarat High Court and Bombay High Court. Both the courts hve also relied on the decision inFederation of Hotels and Restaurantscase, cited supra. We are in respectful agreement with the views expressed upholding the constitutionality of the impugned provisions. 33.A criticism was leveled by the learned senior counsel for the petitioners against the aforementioned judgments of the Gujarat High Court and Bombay High Court. As regards the Gujarat High Court judgment, it was said that the contention raised by the Union of India was accepted only with reference to Entry 52 of List II suggesting that the trader would be subject tothetaxunder Entry 60as a professional and also a tax for sale underEntry56. It was suggestedthat the High Courtfailedto note that the sales taxaspect was under Entry 54 whereas theaspect related to goods came under differententries. Entry 60 herein coversall the aspects of the taxes on profession. We do not agreewith the criticism forthesimple reason that that is not the only ground on which theGujaratHigh Court has taken the view.The High Court hasalso relied onthedecisions inWestern India Theatrecase, Kamtaprasadcase as also theFederation ofHotels and Restaurantscase, cited suprawhichinrealityclinchtheissue. 34.As regardsthedecisionof the Bombay High Court, it was tried to be suggested that also had wrongly given a restricted interpretation to entry 60 of List IIholdingthat it covers only a right orprivilege to practice a profession.The learned counsel veryferventlyargued that such a restrictedinterpretation could not be given to the entry. Inour opinion, firstly to hold that the entry covers a tax which can be levied on account of aparticular person practising a particular trade orcallingwouldnot begiving arestricted interpretation tothe entry. One must in this behalf keep in mind that the entries do not create thepower for taxing. They merely indicate the subjects for thelegislation by the Parliament and the States. Once therewere clearobservations available in the Apex Court judgments to the effect thattheprofessional tax wasfor the carryingout of a profession, there would be no question of giving any other interpretation not warranted by the entry. Again, in rendering this criticism, the petitioners are ignoring Art. 276(2) of the Constitution of India which suggests that the taxes on profession would be irrespective of the income in the sensethat whatever theincome, there would be a limit to a tax and thus it will not be linked with the income. Again, in rendering this criticism, the petitioners are ignoring Art. 276(2) of the Constitution of India which suggests that the taxes on profession would be irrespective of the income in the sensethat whatever theincome, there would be a limit to a tax and thus it will not be linked with the income. Inviewing the present tax as the tax on profession and insuggesting that the tax on profession cannot be linked with the incomefrom the professionviolence is being made to the spirit and language of Art. 276 of theConstitutionofIndia. 35.Further criticism was made of Bombay High Court judgment that it did not take into consideration the observations by Justice ChinnappaReddyinInternational Tourist Corporationcase in suggesting rejection of the interpretationwhichwould allow the legislative exerciseof power by Parliament pursuant to the residuary powers vestedin it totrench upon the State legislation and which would destroy and belittle the Stateautonomy.It was contendedbythe learned counsel that, therefore, entry 60 should be given an interpretation which would also link that entry with theprofessionalincome andtherebywould take away the legislative competence of the Parliament in respectofthe present service taxwhich has an integral connection with the professional income.We have alreadyindicated the distinctnature ofthe service aspect covered in the present tax. In our opinion, it cannot be said thattheBombay High Court has nottakeninto consideration the caution sounded by JusticeChinnappaReddy inInternational Tourist Corporationcase. In ouropinion, the criticism against the judgments of theGujaratHigh Court and Bombay High Court, cited supra, cannot be upheld. 36.There is one more aspectwhichwemust considerbeforewe close. Mr.MohanParasaranwhile supporting the argumentsofthe learned seniorcounsel appearing onbehalfof the petitioners argued that the provisions of Sec.65 (48) and Sec.67 (r) and (s) areconfusingand arbitrary. The contention in short isthat the services which the Chartered Accountants give is a bundle of service. Itis akin to the servicesrendered by anyprofessional including amedicalpractitionerand a lawyer and the relationshipbetween a Chartered Accountant and his clients is like that of a lawyer and his client andit cannot be merely construed as a "service" under the Finance Act 32 of 1990. Though the learned counsel didnotspecifically argue, the tone of the argument was the legislature has picked andchosen the Chartered Accountants or the Cost Accountantsand left out the other professionals like Doctors and Lawyers. 37.This argument is obviouslyincorrect becauseit is for thelegislature to select any particular serviceoranyparticularsubjectfor taxing.Thecelebrated judgment inFederation of Hotels and Restaurantscase, cited supra, aptly covers thesubject. Though the learned counsel didnotspecifically argue, the tone of the argument was the legislature has picked andchosen the Chartered Accountants or the Cost Accountantsand left out the other professionals like Doctors and Lawyers. 37.This argument is obviouslyincorrect becauseit is for thelegislature to select any particular serviceoranyparticularsubjectfor taxing.Thecelebrated judgment inFederation of Hotels and Restaurantscase, cited supra, aptly covers thesubject. In paragraph 20 the Apex Court observes that though the taxing laws are outside Art.14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy legislature enjoys a wide latitude inthematter of selection of persons, subject-matter, events, etc. fortaxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatorytreatment what is looked into is not its phraseology, but thereal effect of its provisions. 38.In the decision reported in (Mafatlal Industriescase) also the Apex Court has approved the "theory of discretion" in thelegislature. There, theobservationsin the reported decision ofR.K. Gargv.Union of India havebeen approved in paragraph 87. The observations are : - "laws relating to economic activities should be viewed with greater latitudethan laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straitjacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation that in other areas where fundamental human rights are involved. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation that in other areas where fundamental human rights are involved. The court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry; that exact wisdom and nice adoption of remedy are not always possible and that judgment is largely a prophecy based on meagre and uninterrupted experience." Similarly, in the same decision, the following observations inKesavananda Bharativ.State of Kerala were also approved. The observations are quoted in paragraph 88 of the judgment. They are :- "In exercising the power of judicial review, the Courts cannot be oblivious of the practical needs of the Government. The door has to be left open for trial and error. Constitutional law like other mortal contrivances has to take some chances. Opportunity must be allowed for vindicating reasonable belief by experience." Therefore, there would be no question of finding any fault with the legislature for picking up the Chartered Accountants or the Cost Accountants or the Architects also for taxing their services. 39.The further argument of Mr.MohanParasaran was that the concerned provisions are confusing. Accordingto him, Chartered Accountant provide various kinds of services, including the maintenance of accounts, auditing of the accounts, drawing up of balance-sheets, preparingannual reports, representing their clients before the tax authorities like representing the case before the higherauthorities under Sec. 144-Aof the Income-taxAct or appearingbefore theCommissionerofIncome Tax, representingbeforethe officers of the valuation of sale of Income Tax department.Thelearned counsel further pointed out that the Chartered Accountants had to do multifarious jobs as drafting the appealpetitions, filing thesame before the Commissioner or filing petitions under Sec.262 before theCommissionerof Income Taxand at times, aChartered Accountant has to brief a lawyer when an appeal is filed before theIncome TaxAppellate Tribunal or in thehignercourts. In fact, in the petition in paragraph 3 all kinds of the serviceswhich the Chartered Accountantsperformhave been enumerated. It is then pointed out that there are no guidelinesin the impugned legislationto suggest as to which preciselyisthe service whichis a taxable service out of the multifarious services offered by the Chartered Accountants. In fact, in the petition in paragraph 3 all kinds of the serviceswhich the Chartered Accountantsperformhave been enumerated. It is then pointed out that there are no guidelinesin the impugned legislationto suggest as to which preciselyisthe service whichis a taxable service out of the multifarious services offered by the Chartered Accountants. 40.A practical difficulty was pointed out by the learned counselthatthe Chartered Accountants normallyissue a composite bill for all theseservices and such bill cannot be split up with regard to the multifarious services offered by the Chartered Accountants. From this it was suggested that the concernedprovisions sufferfrom the "vagueness" and are confusing and as such, can belabelled as "arbitraryprovisions". 41.We havealready pointedouttheobservationsinFederation of Hotelsand Restaurantscase, cited supra, as also the observations made inMafatlal Industries Ltd.case and R.K. Gargcase. We wish to point outthat it is only theservicesoffered bythe Chartered Accountants in their"professionalcapacity" which are made taxable and the servicesother thanof auditingand accounting providedby thepractising Chartered Accountant are exempted fromthistax.Therefore, it cannot be said that thereisany confusion regarding the taxable services. In our opinion, the notification issued under Sec. 93 of the Finance Act No. 32 of1994 specifying that other services excepting the one for accounting andauditing is acompleteanswer to the argument of the learned counsel.Itspecificallyprovides the services whichare made taxable and the other services which arenot taxable. Thisis besides the factthat thereis a complete machinery available in the Act itself to decide the nature of the services. There is also a provision of appeal within the machinery of the Act and, therefore, it cannot be said that there could be confusion about the services offered by the Chartered Accountants or the Cost Accountants. In our opinion, the spirit of the pronouncements of the Supreme Court inMafatlal Industriescase, R.K. Gargcase andKesavanandha Bharathicase, cited supra, the challenge under Art. 14 cannot stand. We are again fortified in our view as the Bombay High Court has also taken the similar view. In paragraphs 37 to 41 its judgment, the Bombay High Court has repelled the attack on these provisions in relation to Art. 14. We accordingly hold that the impugned provisions do not in any manner offend Art. 14 of the Constitution of India. We accordingly hold that all the petitions have no merits and must fail. They are accordingly dismissed but without any orders as to the costs. Connected W.M.P. Nos. We accordingly hold that the impugned provisions do not in any manner offend Art. 14 of the Constitution of India. We accordingly hold that all the petitions have no merits and must fail. They are accordingly dismissed but without any orders as to the costs. Connected W.M.P. Nos. 26985 & 26986/98 and 518, 28852 and 28853 of 2000 are closed. 42.Before we part with the judgment, we must put on record our appreciation for the services of the learned senior counsel, Mr. Arvind P. Datar as also the learned counsel Mr. Mohan Parasaran and other learned counsel appearing on behalf of the petitioners as also the valuable assistance given to us by the learned senior Central Government Standing Counsel Mr. Chandrasekharan and the learned Additional Central Government Standing Counsel, Mr. Veeraraghavan. We record our appreciation.